3. Medium Run AS-AD Model 3.1 Labor Market Equilibrium (2)

Transcription

1 3. Medium Run AS-AD Model 3. Labor Market Equilibrium () Medium-run GD Equilibrium: Demand roduction Un-/Employment Labor Market Wage/Cost Goods Market rice Income Demand articipation Rate Unemployment Rate u Employment Rate US Monthly CS Total opulation Noninstitutional W Working Age opulation Labor Force L Out-of-L N U L/W U/L 3. Medium Run AS-AD Model 3. Labor Market Equilibrium () Out-of-W: Unavailable for Work Child [Age Floor] Soldier risoner Out-of-L: Inactive in Job Search. Discouraged Worker: Understated u. Student: Lower articipation Rate 3. Retiree: opulation Aging roblem 4. Housewife/-husband: Market Activity 5. Super Rich erson: Effectively Retired

2 3. Medium Run AS-AD Model 3. Labor Market Equilibrium (3) Active/Liquid Labor Market: US Separation [Quit Layoff] and Hire Short Duration of Unemployment Sclerotic/Stagnant Labor Market: EU Unemployment Insurance/Benefit Min. Wage Employment rotection Disguised U: Involuntary art Timer Separations Hires: Correlation with u 3. Medium Run AS-AD Model 3. Labor Market Equilibrium (4) Wage Determination: W = e F(u, z) +. Union: Advance Collective Bargaining Difference by Countries Skills Efficiency Reservation Wage Turnover and roductivity [Ford]. Labor Market Condition: Level of u 3. Catchall Variables: Micro Side Labor Market Institution olicy

3 3. Medium Run AS-AD Model 3. Labor Market Equilibrium (5) rice Determination: = ( + m) W. Macro = AN Micro q = f(l, K). Constant Marginal Returns to Labor Constant Returns to Scale Labor roductivity = M L = A 3. Averagely Imperfect Competition: M L = A = W/MC Markup ricing Based on MC = W Given A = 3. Medium Run AS-AD Model 3. Labor Market Equilibrium (6) Natural/Full-employment GD u n Micro SR Frictional + LR Structural U SR: Seasonal U Macro Cyclical U Macroeconomic Labor Market W/ WS Relation W/ = F(u, z) + S Relation W/ = /( + m) Economic Structure = e u = u n N n n u Microeconomic Labor Market w L WS L S N S L D w = MR L = MR M L U L 3

4 3. Medium Run AS-AD Model 3. AS-AD Equilibrium () Aggregate Supply Equilibrium: WS + S Causality in AS Relation: Controversy n N u W > e > n = e WS = S u n N n n AS Relation = Labor [Factor] Market Equilibrium Upward Sloping AS Curve = e ( + m) F( /L, z) = AS() + Movement along AS Curve : Endogenous Independent Variable : Endogenous Dependent Variable Non-output Factors: Exogenous Independent Variables = e = e Output Given: Shift Up/Down e W 3. Medium Run AS-AD Model 3. AS-AD Equilibrium () Aggregate Demand Equilibrium: IS + LM Inverse Relation: Macro AD Micro D i Same as Nominal Monetary Contraction M S / i I AD Relation = Goods/Financial Markets Equilibrium Downward Sloping AD Curve = AD(M/, G, T, z) = AD() Movement along AD Curve : Endogenous Independent Variable : Endogenous Dependent Variable Non-price-level Factors: Exogenous Independent Variables rice Level Given: Shift to Right/Left 4

5 3. Medium Run AS-AD Model 3. AS-AD Equilibrium (3) AS Relation: = e ( + m) F( /L, z) = AS(, e, m, z) = AS() AD Relation: = AD(M/, G, T, z) with z = c 0 and b 0 = AD() Macroeconomic SR MR/LR General Equilibrium: Major Shocks Demand Side Goods/Financial Markets: Macro M/F Confidence Supply Side Labor Market: Micro Labor/Industry olicy Factor rice = e = n > e > n Vertical MR/LR AS Curve: = n = e Dynamics: Upward Revision in e and W Upward Sloping SR AS Curve Recession Expansion 3. Medium Run AS-AD Model 3.3 Dynamics under Shocks () AD Shock (): Monetary Expansion n 3, AD Shock (): Fiscal Consolidation G/T/c 0 /b 0 n 3, i Neutral for I M Constant i MR/LR Neutrality of Money n = AD(M/, ) = C( n T) + I( n, i) + G Unambiguous MR/LR Effect on I n = C( n T) + I( n, i) + G Crowd Out 5

6 3. Medium Run AS-AD Model 3.3 Dynamics under Shocks () IS LM Relation: Real r Nominal i MR Neutrality of Money: = n r = r n MR Fisher Effect/Hypothesis: i i = e = / = M/M g M r i e Ex Ante Ex ost Short Run Medium Run 3. Medium Run AS-AD Model 3.3 Dynamics under Shocks (3) Original hillips Curve: u as te = 0. Wage-rice Spiral: u W. olicy Tradeoff between u and Expectations-Augmented hillips Curve. Regular Inflation Revision: te = t-. Accelerationist View: u 3. MR/LR u = u n = NAIRU = 6% in US = te = 0 AS Relation 6

7 3. Medium Run AS-AD Model 3.3 Dynamics under Shocks (4) AS Shock: Change in Real Factor rice Oil Crisis Cartel [OEC] China Stagflation = Stagnation + Inflation Higher Oil Cost Reflected in Markup Competition M Smaller Impact W/ Higher u n Lower n = e, m = e u n u n u LRAS SRAS = n = n 3. Medium Run AS-AD Model 3.3 Dynamics under Shocks (5) Business Cycle: Output Fluctuation by Continual Demand/Supply Shocks with Different ropagation Mechanisms New Keynesians New Classicals: Time Frame [SR MR/LR] for Dynamics of Adjustment to the Natural Level of GD olicy Implication/Recommendation Keynes: In the long run, we are all dead. 7